Taking steps to rebuild credit after making some financial mistakes or while recovering from a difficult time in life is one of the most important things you can do to get your life back on track. Having poor credit will not only affect interest rates you receive on credit cards, car loans or mortgages, but can also determine what car insurance rate you pay, whether a landlord will rent an apartment to you, or whether you are hired for a job, among other things. The first step you need to take is to get a copy of your credit report and find out your credit score -- this will tell you where you need to begin.

Your credit score, also known as a Fair Isaac Corporation (FICO) score, is a three-digit number that tells potential creditors at a glance how much of a risk it is to lend to you. The highest possible score is 850; you should try to get your FICO score as close to that as you can. Any score over 760 is considered an excellent credit score. Obviously, the lower the score is, the worse your credit history is -- this means you need to immediately begin taking steps to rebuild credit.

It helps to know first how your FICO score is calculated. It is made up of five different categories. Thirty-five percent of the score is your payment history, which looks at timely or late payments; 30 percent is reflected in your outstanding debt; 15 percent checks the length of your credit history; ten percent is the types of credit you are using, such as a variation of credit cards, store cards, personal loans, or school loans, among others; and ten percent is affected by recent inquiries into your credit history, such as if you've recently applied for credit.

After knowing how the credit score is calculated, it becomes simpler to determine how to rebuild credit. First, check your credit report for any errors, and resolve them either directly with the creditor or with the credit reporting agency. Most people focus on removing any negative information, which is important -- it is generally a good idea, however, to stay away from for-profit "credit repair" clinics, which are often scams. Instead, check with a Consumer Credit Counseling Service, which can help you take steps to remove negative information, pay down balances and rebuild credit.

Over time, late payments and negative information will have less of an impact on your credit score. This means it is now time to rebuild positive credit. Try to keep your credit cards at under 30 percent of your available balance; this will signify to lenders that you are responsible and living within your means, along with keeping your debt-to-credit ratio low. If you pay off credit cards with a high interest rate and you no longer wish to use the cards, as long as they do not have an annual fee, do not close the card -- this can further damage your credit. Instead, just don't use it. Try to make all your payments on time -- this is one of the most important steps when trying to rebuild credit. If your credit is so bad that creditors will not lend to you, opening a secured credit card is a first step to creating a credit history.

Creditors also look at the length of time you have been employed, so if possible, do not frequently change jobs and change locations. Open a checking account, and pay household bills on time. Creating a household budget may be a helpful strategy to keep you on track. Rebuilding credit takes time, but the benefits are immeasurable.